Government may impose export tax on iron ore, steel

The move is one of the recommendations in a report by an interdepartmental task team, led by the department of trade and industry, that has been examining the iron ore and steel value chain.

The state has long been at loggerheads with industry over the supply of iron ore and steel into the local market. It has sought more affordable prices, in a bid to make South African goods more competitive and boost its industrial development.

Cabinet endorsed the "urgent implementation" of the report’s recommendations, Minister in the Presidency Collins Chabane, said in a statement on Thursday.

The report's recommendations include: "deployment and amendment of relevant sections of the mineral and petroleum resources development act (MPRDA); amendments to the Competition Act; amendments to shareholder compacts with [state owned entities]; introduction of export taxes on iron ore and steel, where appropriate; and the promotion of new steel investments and prioritisation of electricity available and connections to such investment".

The potential introduction of export taxes may come as unwelcome news for the country’s largest suppliers of iron-ore and steel, namely Kumba Iron Ore and ArcelorMittal South Africa (Amsa).

The two companies have been locked in a long-standing contractual dispute over the price of iron ore supplied by Kumba’s Sishen Iron Ore mine, to Amsa, at a rate of the cost of production plus 3%.

Kumba has been fighting to charge it more for the ore, after Amsa lost a share of the mineral rights to the Sishen mine, to a politically connected newcomer Imperial Crown Trading (ICT).
The award of the share of these rights to ICT is currently at the heart of a court battle, involving the three companies and the department of mineral resources.

The steel giant has for many years, however, been criticised by government for failing to pass on the benefit of the cheap Sishen ore in the form of more affordable steel prices. But Amsa has consistently denied this allegation.

South Africa is a net exporter of steel, producing more steel than it can consume. The sector has been struggling due to tough market conditions, both locally and globally.

All the country’s steel producers are operating at the margins or making a loss, one analyst who asked not to be named, told the Mail & Guardian. As these companies were beneficiating raw material, an export tax would simply punish them the analyst said.

ArcelorMittal South Africa’s exports around 20% of its steel through its plant at Saldanha Bay.

The plant has been battling cost pressures particularly that of electricity, thanks to extensive tariff increases in recent years, with more on the way.

ArcelorMittal South Africa spokesperson Themba Hlengani said the company was waiting to study the full report before it could comment on the Cabinet's decision.

It is not clear at what level any potential taxes might be imposed.

Kumba Iron Ore exports roughly 34-million tonnes of iron ore to the rest of the world.

A Kumba spokesperson said the company was aware of the government’s statement regarding proposals for export taxes on iron ore and steel, but could as no further details were available it was unable to comment.

The department of trade and industry could not be reached to provide greater detail or clarity on the recommendations of the report.